As I have written countless times on these pages, one of the paradoxes of public policy debate is that the average voter understands small numbers much better than they understand big numbers. Thus, for example, the revelation yesterday that RTE spent €5,000 on 200 pairs of flip flops is likely to stick in people’s minds far longer than the news, published on the same day, that the Government has wasted €150,000,000 on abandoned rail projects. The reason for this is straightforwardly that the average person can relate to the value of five grand, but not really to the value of one hundred and fifty million euros.
The total sum of Government spending is on a different scale again: The summer economic review projects that Ireland will spend one hundred and seven billion euros in total this year, for a total expenditure of about €203,576 every minute, or €3,400 per second.
What is notable here is not the amount, per se, but how much it has increased in recent years – as pointed out with some concern by ex Fine Gael Councillor, Keith Redmond:
https://twitter.com/ExCllrRedmond/status/1676338186274975751
What’s the reason for the massive increase, first of all? It cannot simply be, as some assert, Covid 19. While spending increased enormously during covid, much of that spending was on temporary supports for businesses and employees who lost work as a result of lockdowns. That spending was intended to last the duration of the lockdown, and then be wound back in. But the figures show that no such thing has happened. Instead, Covid 19 appears to have triggered an enormous increase in the size and scale of Irish Government, which shows no sign of being reversed.
Some may also try to attribute the spending increases to inflation: As a result of inflation, Government like everybody else is facing higher costs for raw materials and services, meaning that spending would have to rise just to stand still. Add to that the various supports offered to families and businesses to counteract the effects of price rises, and you can see why spending would rise. But this too is an unsatisfactory explanation: The cumulative inflation rate in Ireland has been somewhere between 9 and 12% since 2019 – and yet spending has increased by almost 25%.
Indeed, ask a Government spokesperson for their account of where the money is going, and you would not get lengthy discussions of Covid 19 and inflation: Instead, you’d get an uplifting account about how this Government is “investing” in Irish society across the board, improving public services, and investing in tomorrow, and all of that political bumph.
The problems, as I see them, are threefold:
First, this spending is closely related to an unprecedented surge in tax revenue which mainly arises from a vast increase in corporate revenue being funnelled through Ireland. Our spending increases are coming on foot of money which is not truly “Irish”, as such, but is dependent on the economic success of foreign (mainly American) companies based here, particularly in pharmaceuticals. If you subtract those companies from the national ledger, then the spending by the state simply isn’t sustainable based on actual Irish domestic economic activity. If, for some reason, there was to be a sudden global economic shock that affected multinationals based here and collapsed their profits, Ireland would be deeply, and desperately exposed.
Second, there is no real evidence that this increased spending is efficient: If we are, for example, investing in more housing, then we are doing so at the most expensive possible time to spend that money. As I reported earlier this week, some of the money we are spending is going to provide extra private beds in public hospitals – at objectively inflated costs. Lots more of it is going on inflation supports which, by their nature, are not intended to really improve anyone’s standard of living – and may in fact be making the problem worse.
Third, if and when the economy goes into a sudden reverse – as every economy in human history has – then this spending will look grossly irresponsible. It is a “lessons to be learned” waiting to happen.
Ireland, older readers may remember, has been on this road before. After the mega-crash in 2008, Charlie McCreevey’s statement that “if I have money, I will spend it” became rightly infamous. “We all partied” was another line that provoked ire.
It is widely accepted domestically and internationally that runaway Government spending in the years before 2008 was a major contributory factor to the economic disaster Ireland faced. In the years after that disaster, politicians ensured the public that they had learned their lesson, and would approach the future with an attitude of prudence and restraint. The 2011 Fiscal Treaty was intended to ensure that such spending splurges could never happen again, by tying spending to hard deficit limits.
But that treaty had a weakness: There is nothing in it saying that you cannot spend your lottery money like a drunken sailor, if you happen to pick the correct numbers in the multinational tax revenue sweepstakes. Ireland is spending like a drunken sailor. If the hangover comes, prepare to hear a lot about what a mistake that was.
“Lessons have been learned” is a cliché in Ireland for a reason. It’s because the reality is that lessons are never, ever, learned.